Calcutta Notebook

Ukraine Fallout

Bharat Jhunjhunwala

The price of crude oil is expected to shoot up from US Dollars 80 per barrel a few months ago to USD 150 in the next few months if the war in Ukraine continues. Correspondingly the price of petrol in India will increase from about Rs 90 per litre presently to about Rs 130 per litre. India will have to pay higher amounts for the purchase of crude oil. In truth India is totally dependent on imports of coal, oil as well as uranium for meeting the energy needs at present. The entire economy will be disrupted if supplies of crude oil get disrupted due to global insecurities. One way forward is to develop domestic sources of energy so that the country can remain energy-secure during geopolitical disturbances.

The government has already taken commendable steps to increase the production of solar power. However, various assessments indicate the share of solar power in the energy basket in 2050 will only be about 14 percent even with this rapid increase in production of solar power. Hence, while solar power is necessary, it cannot rid India of its dependence on imports. The second domestic source is that of hydropower. The difficulty is that the environmental impacts lead to a lower standard of living for the people. For example, large hydropower reservoirs are hot beds for the breeding of mosquitoes. Studies indicates that the incidence of malaria near these reservoirs is much higher than away from them. The aesthetic beauty of the river is destroyed and water quality deteriorates. These impacts lead to lower standing of living of the people of the country. Thus, the improvement in standard of living by the provision of hydroelectricity is partly, if not substantially, cancelled by these environmental impacts. Further, many rivers are already dammed bumper-to-bumper and there are limits to how much hydropower can be generated. Hence while hydropower may help alleviate energy security, in the same breath, it will lead to lower standard of life of people and this is not a true solution.

The third alternative is to increase the production of ethanol from sugarcane. Here the problem is that of food security. One will have to divert larger areas of agricultural land for the production of ethanol. That will lead to lower production of food grains and make the country dependent upon imports. India will thus be caught between the devil of food security and the deep blue sea of energy security. The fourth alternative is to develop nuclear power. Nuclear power is produced from uranium. However, India has very limited deposits of uranium within the country. The alternative is to convert thorium into uranium and then use it for the generation of nuclear power. There are adequate sources of thorium. However, India has not yet been successful in creating the technology for converting thorium to uranium. It is notable that China is far ahead of India on this technology and is soon going to test the first thorium-based experimental nuclear reactor. Given the laggard progress in this matter it is not likely that India will be able to develop this domestic source of energy in the next two decades. As a result there is no possibility of increasing domestic energy production to secure energy security.

The only way out, then, is to reduce energy consumption so that the country has to import less quantities of coal, oil and uranium and one can ensure the energy security of the country. A report in the journal Nature says that the upper 10 percent population of the world consumes 50 percent of the global energy. For example, they use drying machines to dry washed clothes—a work that could easily be done by the sun without any expenditure of energy. Thus, the total consumption energy will reduce substantially if one can reduce the consumption of energy by the upper sections of the society. Another article in the same journal says that one major source of energy consumption by the upper classes is in the use of personal means of transport such as cars. Therefore, one can increase the price of electricity and fuel oil so steeply that the upper sections are encouraged to reduce their energy consumption in drying machines and cars. Let us say if the government imposes an “energy security tax” of Rs 100 per litre on oil. This will lead to an increase the price of petrol to Rs 200 per litre. The upper sections will have to pay higher and also encouraged to use less of personal cars. The higher taxes collected from oil can be used to develop a robust public transport system of buses and metros. For one thing it is more convenient to travel in public transport because the time can be used to read newspapers or do other work. Driving the car involves expenditure of much metal as well as physical energy. The impact on the poor of such a price increase will be reduced since they will be compensated by the improved provision of public transport even though they will face some increase in cost due to the increase in price of all commodities because of the increase in price of petrol. On the whole they may not be much affected. Similarly, the government must impose an “energy security tax” of, say, Rs 20 per unit on electricity consumption above 300 units per person. The price of electricity for upper classes will then increase to say Rs 25 per unit which will encourage them to reduce electricity consumption and that will help the country establish energy security.

The second step one should take is to change the focus of economic growth from “Make in India” to “Served from India”. The consumption of electricity in manufacturing is about 10 times the consumption in services sector such as software, movies, translations, and the like. By shifting the thrust of our economic growth to services sector, one can produce higher GDP with less consumption of energy. It is time that the government take the steps to reduce energy consumption so that people are prepared for any eventuality when global instability arises due to conflicts such as that underway in Ukraine.

[Formerly Professor of Economics at IIM Bengaluru.]

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Vol 54, No. 39, March 27 - April 2, 2022